RETIREMENT villages will continue to consolidate as corporations bank on a demographic certainty: Australia is getting old.
You don't have to be an actuary to see the potential: by 2050, people aged 65 or older will make up 25% of the population; in 2000, they made up 4%. The market is ripe for retirement villages.
There's just one small problem. Would you want to live in one?
Traditional builder and developer Lend Lease is betting the answer is "yes". In June it made a bid for Australia's biggest retirement village owner and operator, FKP, offering $5 a share - a 65% premium on FKP's three-month average share price.
While that sounds generous, negotiations continue as the companies haggle over the value of FKP's massive land holdings and potential for growth.
Lend Lease chief executive Greg Clarke said retirement villages would drive an increasing proportion of its growth compared to commercial development.
Other potential targets include AMP Capital Meridien Lifestyle, which owns more than $1 billion of retirement assets, and the $1.3 billion Prime Retirement and Aged Care trust.
Last month, the chief executives of Stockland, Becton and FKP said they planned to expand their market share. Stockland picked up three more villages for $34.2 million from Ryland; and Lend Lease took a healthy stake in Babcock and Brown Communities, one of Australia's top three retirement owners.
Meanwhile, Ballarat's privately owned Country Club Villages, with a $500 million development pipeline, is reviewing its business with the view of reaping a tidy sale profit.
This comes on top of two years of unprecedented sales growth in which Stockland paid $329 million for Australian Retirement Communities; Macquarie and FKP paid $641million for the Zig Inge portfolio and AMP Capital Investors reportedly paid $500million for a joint venture with developer Meridien.
Consolidation is nothing ground-breaking - scale is important for most corporations, and the market is still incredibly fragmented. The top 10 operators still control only about 33% of stock (dwellings) in retirement villages, according to Jones Lang La Salle. Two of those are "not-for-profit".
But consolidation is also important for Australian retirement businesses in particular because unlike US retirement villages, they rely on uncertain cash flows stemming from "deferred management fees", paid by retirees when they leave the village, instead of when they arrive.
Predicting when these profit-generating, "rollover events" - as they are called in the industry - will occur is easier if you're working with a bigger cohort of oldies. Hence the drive to get bigger.
But while deferred management fees account for a huge slice of operating revenue, they are becoming increasingly unpopular with residents and their families. Some have called for caps on exit fees, which can often be hundreds of thousands of dollars.
If retirement operators cannot attract that burgeoning over-65 group into their villages, demographic change will mean nothing.
The aged-care industry is different; but if you were still capable of looking after yourself with little assistance, why would you sign up for an independent living unit with a ludicrous exit fee and lose the capital value increase on your home?
I have met people who have suffered a nasty shock when it comes time to moving relatives from a retirement unit into an aged-care facility.
I recently spoke to David Sandground, who, in a former life, brokered sales of retirement villages, and played a part in setting up some financial structures. "The cream" of the deal, he said, was always the deferred management fee.
Two years ago, he had to move his mother from a Prime Life retirement unit to a high-care hostel - and was appalled at the bill.
His mother had bought a licence to occupy a flat for $235,000 in 2002. Her "independent unit" was cleaned once a week. Four years later failing health forced her to move to a hostel. She needed $260,000 bond money, but it took nine months for the village to sell the leasehold for the unit.
She paid "service" fees of nearly $10,000 in that time, despite her unit remaining vacant. Her unit sold for $275,000, but she received only $215,000 - a $60,000 loss after the deferred management fee, refurbishment fee and outstanding service fees were deducted, despite capital value growth.
"There is no rationale for the DMF, it is purely profit, and that's what attracts a lot of the developers and operators into this," Mr Sandground said. "When you're caring for elderly people going into contracts like this under stress, you don't have much choice. And if you haven't got money, you're really stuffed."
Mr Sandground says the system in the US is much more flexible. There, the so-called "seniors living" market has market penetration of about 12% of the over-65 population, compared to 4% in Australia. Of course, as a nation we don't go in much for US country club living. Darryl Kerrigan would never survive in Morty and Helen Seinfeld's retirement village, the "Del Boca Vista Phase III".
But regardless of social differences, retirement villages could still be made more attractive to Australians, especially if the links to aged care were strengthened. Nobody wants the trauma of selling a property - or at least, the lease on a property - while trying to organise care for an elderly parent.
Retirement operators must provide more choice, more freedom and ultimately a better deal if they are to coax us out of our family homes.
Retirement companies should seriously reconsider the deferred fee model if they want to make the most of their ongoing opportunities.